By Guest Post By Sharky Laguana, CEO of Bandago. This article originally appeared on Medium.com
Streaming services, most notably Spotify (by far the largest) use what could be called a parimutuel royalty system: all the money collected goes into a big pool, Spotify takes their 30% off the top, and whatever is left is distributed to artists based on their share of overall plays. Spotify explains how it all works right here. It sounds perfectly fair and reasonable: if an artist wants to make more money all they need to do is get more plays. But there’s a major disconnect in this economic model that has not been discussed widely: Spotify doesn’t make money from plays. They make money froms subscriptions.
So how is that a disconnect?
Let’s say I am a huge fan of death metal. And nothing pumps me up more than listening to my favorite death metal band Butchers Of The Final Frontier. So I sign up for Spotify in order to listen to their track “Mung Party.” I listen to the track once, and then I decide Spotify isn’t for me.
OK, So who got the benefit of the $10 I paid in subscription fees?
$3 goes to Spotify. Sure, that seems fair enough.
Roughly …read more